Occlusion reduction based on closed-loop electroacoustical compensation was discovered in 1988 by the Principal Investigator and experimentally verified during Phase I in a simulated hearing aid, denoted as an Occlusion Cancellation Unit (OCUnit). Using the OCUnit, a 20 dB reduction of the occlusion effect was measured. In addition, the OCUnit provided higher available gain before positive feedback oscillation, reduced amplifier and receiver distortion, reduced direct transmission of ambient sound outside of the OCUnit pass band, and provided better low-frequency response (if needed). The closed-loop concept is now ready to be applied to the design, fabrication, and testing of an experimental in-the-ear Active Hearing Aid (AHA). Two types of occlusion compensation will be evaluated during Phase II, and a selection made for the AHA to be fabricated for clinical testing. The AHA will be evaluated on 20 hearing-impaired subjects, 10 with normal hearing through 1000 Hz and a moderate high-frequency loss, and 10 with a mild-to-moderate sloping hearing loss. Plans for a commercial AHA will be prepared.